Job Cuts Are Expected at Boeing Unit
Boeing Co., battered by a slowdown in the telecommunications industry, is preparing for significant retrenchment this year at its satellite manufacturing operations in El Segundo, starting with a cutback of about 1,000 jobs expected to be announced today, according to sources close to the decision.
Layoffs could exceed 2,000 this year, or nearly 25% of the work force at what has been one of the most resilient and fastest-growing sectors of the California aerospace industry.
The cutbacks reflect a belated response to the telecommunications bust that has seen the collapse of a number of ambitious efforts to build global wireless communications systems and space-based broadband systems for the Internet. The El Segundo business, which Boeing acquired last year, had aggressively expanded manufacturing capacity in recent years and developed new generations of more powerful satellites. The investments were based on the outlook for tremendous communications industry growth, the same optimism that damaged companies such as Lucent Technologies Inc. and Global Crossing Ltd.
“They’re starting to feel” the downturn, said Marco Caceres, senior space analyst with Teal Group, an aerospace research firm. “They have been building a satellite a month for a long time, but they’re looking at the future and they’re not seeing the kind of orders they’ve had.”
The move comes four months after Boeing slashed about 400 jobs, citing the slowdown in orders. The unit is the world’s largest maker of satellites for both military and commercial markets and now has about 9,200 employees, most of them at the sprawling complex south of Los Angeles International Airport.
A Boeing spokesman declined to comment, but an all-employee meeting is scheduled for today when details of the cuts are expected to be unveiled, Boeing sources said.
About 1,000 positions, in all areas of the unit, are expected to be slashed in the first round of cuts, but Boeing officials hope to lay off about 500 to 700 people, with the rest taking early retirement or jobs at other Boeing units.
The company is the largest private employer in the region, with about 35,000 employees, and has other major operations in Seal Beach, Canoga Park, Anaheim, Huntington Beach and Long Beach.
A second round of cuts, which Boeing officials hope to avoid or curtail, could include another 1,000 jobs, a source said.
In all, including the previously announced cut of 400 jobs, Boeing could end up slashing a quarter of the satellite work force, a percentage reduction similar to Boeing’s other recent cost-cutting measures. Boeing’s commercial aircraft making business, hurt by the slump in air travel after the Sept. 11 terrorist attacks, is slashing as many as 30,000 jobs, or about 30% of its commercial aircraft work force.
The decision comes a little over a year after Boeing bought the business from Hughes Electronics Corp. for nearly $4 billion, a price analysts considered too high.
Boeing officials have insisted that their main interest in acquiring the satellite business was not for its manufacturing base but for the engineering know-how to create a company that could provide integrated systems. For instance, it has pushed hard to market satellite-based Internet service as well as an air-traffic management system that relies on satellites.
But with the slump in the telecommunications industry, few commercial orders have been placed, and prospects for new business were dashed when new satellite-phone start-up businesses such as Iridium and New ICO went bankrupt.
It won several high-profile defense contracts, such as building a constellation of spy satellites for the National Reconnaissance Office, but it appears they weren’t enough to offset the drop in commercial business. A Boeing official declined to say how many orders it received last year, but the company delivered six satellites compared with eight the year before.
The unit, which generates more than $2 billion in revenue, still has a backlog of 38 satellites worth about $5 billion, but new orders have slowed in recent years, analysts said. Depending on the configuration, satellites can range in price from about $100 million to $250 million, and the more sophisticated satellites can take as long as 18 months to build.
The unit also was hurt by a decision last year to drop out of a major military program after its role was reduced. Boeing’s share of a new generation of satellites for the Pentagon, which was supposed to be developed with Lockheed Martin Co. and TRW Inc., shrank from more than $900 million to about $400 million. Boeing said the project’s risks were not worth its diminished role.
Moreover, the unit has been hit hard by quality problems with its satellites.
Some Boeing engineers say that quality problems, including recent revelations that several of the company’s most powerful satellites have problems with their solar panels, are hurting their competitiveness in an already very difficult market and putting pressure on pricing.
But Caceres said Boeing has a “very strong position” relative to its European competitors, who have exploited restrictive U.S. export rules to garner foreign customers.
“They were expecting a boom market a few years ago but it’s not going to happen,” he said, adding that worldwide annual demand for satellites has dropped from the upper 20s to the low teens. “They don’t expect an upturn until 2003 or 2004.”
Rumors about the cuts have been swirling at the facility for the last two weeks, and some employees had anticipated a major announcement as early as last week.
Officials at Raytheon Co.’s Electronic Systems unit, which is headquartered a few blocks from Boeing’s satellite business, privately acknowledge hearing about potential layoffs as early as last month and were preparing for a possible onslaught of resumes.
Boeing shares fell 40 cents to close at $43.31 on the New York Stock Exchange.
